Your Exit Strategy

Two thirds of business owners plan to use their business as their primary source of retirement income. With a third of businesses having an owner with an average age over 50 and our aging population there are likely to be increasing numbers of businesses come up for sale in the coming decade. This begs the question: “Do you have an exit strategy?”

The typical benefits of an exit strategy will depend largely on how you plan to leave the business and the timeframe involved. The two main scenarios are selling your business

or succession and this decision is often determined by the amount of funds you have built up outside the business that will be used for retirement.

An exit strategy will:

  • Maximise the value you and shareholders get from the sale by helping you prepare the business for sale
  • Allows you to choose the ideal time to exit on your terms
  • Gives you a plan to groom successors
  • Can help minimise tax liabilities through planning
  • Help you decide your retained involvement in the business
  • Help plan the systems and procedures required to attract potential buyers
  • Help you understand the decision drivers from the potential buyers viewpoint

Given the advantages of having an exit plan, businesses should be thinking about their exit strategy from Day 1 or at least considering it annually as part of their strategic planning process.

The key elements that should be covered include:

  • Document your business performance
  • Systemise and document your business
  • Find & train a successor
  • Determine your optimal selling price
  • Prepare the premises for inspection
  • Seek professional assistance

A recent CPA survey indicated that 84% of businesses were very dependent on the owner and that very few businesses bothered with an exit strategy if they had no one to inherit the business or they deemed their business too small for sale.

Ideally to optimism your return businesses need to start planning their exit strategy up to 5 years prior to their intended sale date. However with professional guidance and support this can be reduced significantly. Research from MAUS indicates that businesses that are prepared for the sales process can boost their potential valuation by more than 20%, which can certainly add up and affect the quality of your retirement. The potential valuation increase and the significant CGT implications are reasons why you need to talk to an expert at Watts Price Accountants about your exit strategy sooner rather than later.

 

Richard Kemp – Watts Price Accountants
E: richardk@wattsprice.com.au

The advice provided on this Article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs.